U.S. flood insurance debate resumes as deadline nears

May 02, 2012|Reuters

* FEMA asking for two-year program extension

* Opponents want action on reform bill instead

* Current program expires May 31

By Ben Berkowitz

May 2 (Reuters) - Federal officials are putting freshpressure on Congress to take action on the National FloodInsurance Program, whose authorization expires at the end ofthis month, one day before hurricane season begins.

The NFIP has been a political football in Washington foryears, particularly because of the unsustainable debt load ittook on in the wake of Hurricane Katrina in 2005. There is abroad push to reform the program and put it on a sound financialfooting, but competing visions on that reform (including whetherto forgive the program's debts) have stalled legislation.

For now the program remains in business with repeatedshort-term extensions, though in 2010 it was allowed to lapsefor a few weeks. The Federal Emergency Management Agency iswarning of serious consequences if that happens again.

"A lapse in the NFIP has a rippling effect. Property ownersare unable to complete their mortgage transactions," said DaveMiller, associate administrator of the Federal Insurance andMitigation Administration, the FEMA division that runs the floodprogram, in an interview on Wednesday.

Federal law requires that homes in designated flood-riskareas have flood insurance before a mortgage can be completed.Because the NFIP is effectively the only flood insuranceavailable in the United States, a lapse in the program meanshome sales can not close in designated flood areas.

Miller cited estimates from the National Association ofRealtors that as many as 1,300 real estate closings a day couldbe affected by a lapse in the program.

According to informal guidance issued by the Federal Reservein early 2010, during a lapse period lenders can still makeloans on properties that are required to have flood insurance,even if that insurance is not available. Companies thatadminister flood policies on FEMA's behalf have said they doubtmany lenders would take that advice and proceed with loans.

For now the debate appears to be focused on whether to moveahead with reform legislation pending in the U.S. Senate or tosimply reauthorize the existing program.

FEMA Administrator Craig Fugate, in an April 17 letter tocongressional leaders, asked for a two-year reauthorization.

An insurance industry coalition called SmarterSafer.orgcondemned that request last week, saying it ignored bipartisansupport for actual reform.

"The current NFIP is broken and, without real reform, ourcommunities will be far less safe, our environment will bethreatened, and the program will remain billions of dollars indebt to U.S. taxpayers," the group said in a statement.

Other industry groups are reportedly pressing for reformaction as well, hoping the Senate will vote on a pending bill torestructure the program after the U.S. House of Representativesoverwhelming passed one last year.

"I see it all over the board, it's uncertain right now whereit's going to go," FEMA's Miller said, adding that he wasoptimistic - an optimism tempered by the fact that he onlyrecently joined the program and is well aware of its difficulthistory getting extended.

As of Feb. 29, the NFIP had 5.59 million policies in forcenationwide, with a total insured value of $1.267 trillion. Thosepolicies would remain in force even if the authorization for theprogram lapsed.

From 2006 to 2010, the NFIP paid out $6.21 billion inlosses, according to statistics on the program website.